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FREEDOM4 Communications

  • BY: Andrew Hore |
  • POSTED: 16/05/2008 |

FREEDOM4 Communications has slimmed down to a WiMAX service developer with cash.

The former Pipex Communications has sold its broadband and web hosting businesses and returned most of the cash to shareholders. It is left with £3m in cash plus a further £10m in escrow. The latter should become the company’s own cash by the end of June. How much of it comes into FREEDOM4’s coffers depends on warranties and indemnities offered when the broadband business was sold last year.

On top of the cash Oakley Partners owes the company £17.5m in loan notes. These will be repaid within 18 months and that cash will be distributed to shareholders.

It is all very well having cash but how fast it will flow out is a more significant question.

The remaining trading asset is a 52% stake in a WiMAX joint venture with Intel. It owns wireless spectrum that can be used to provide a WiMAX service.

Trials have been carried out in Manchester, Warwick and Milton Keynes. The joint venture has already installed 11 base sites – at an average cost of £100,000 each. It is still early days, though.

FREEDOM4 has committed to investing $7.7m in the joint venture by the end of June and says it will make a further $6.6m available. Add on corporate overheads and FREEDOM4 believes that it has enough cash until at least the second quarter of 2009. After that it will have to consider how it will finance its share of any WiMAX roll-out costs.

There is another spectrum licence being sold this year. It will have less capacity than FREEDOM4’s licence but it will give an indication of how much the existing licence is worth. Any unsuccessful bidders for the new licence could be potential partners for FREEDOM4 if they still want to get involved with WiMAX.

At 1.77p, up 0.11p on the day, FREEDOM4 is valued at £19m. Most of that value is covered by the cash that will be returned when Oakley repays the loan notes. The key to the valuation is how much the WiMAX joint venture stake is worth. Collins Stewart suggests that it could be worth £10m. The true value, though, won’t be seen until the roll-out of the service has progressed further. 

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